'Biz sentiment may have bottomed out'

Companies anticipate the weaker rupee will help support external demand over the coming months, says MNI India Business Sentiment Indicator

The Reserve Bank of India (RBI) lowering the policy interest rate by 0.25 percentage points this month has boosted business sentiment, according to the MNI Indicator.

The MNI India Business Sentiment Indicator, a gauge of sentiment among listed companies, rose to 67.1 in June from 62.3 in May. A score above 50 shows companies are optimistic about expansion. Business sentiment may have bottomed because the indicator has been declining since September 2014.

"The interest rate cut seems to have contributed to the rise in business confidence. Previous rate cuts have provided short-term boosts, but the magnitude of this month's increase suggests the easing to date is starting to have a positive impact," a commentary associated with the Indicator said.

The RBI has lowered the policy rate by 0.75 percentage points since January.

Companies reported increased access to credit and said they were benefiting from lower interest costs.

"It would be unwise to read too much into one month's data, but the brighter tone of the June survey provides an early signal that the trend decline in sentiment since September may have run its course," said Philip Uglow, chief economist, MNI Indicators.

Having acted as a damper on sentiment for months, the export orders indicator rose 13.2 per cent in June over May. Companies anticipate the weaker rupee will help support external demand over the coming months. India's merchandise exports have been declining since December. They contracted for the sixth month in a row in June by 20 per cent.

MNI Indicators is a financial information firm of the Deutsche Börse Group.

The survey is based on responses of more than 400 companies.